Which of the following fiscal policy actions is most likely to increase aggregate supply?

Question

Multiple Choice
an increase in personal income tax rates
a reduction in interest rates that encourages consumers to purchase more durable goods
an increase in transfer payments to unemployed workers
an increase in government spending on infrastructure that increases private sector productivity

Answer 1

The fiscal policy action most likely to increase aggregate supply is:

an increase in government spending on infrastructure that increases private sector productivity.

This option focuses on enhancing the productive capacity of the economy, which leads to an increase in aggregate supply. Improving infrastructure can reduce costs for businesses, increase efficiency, and lead to higher productivity overall.